I’m halfway through Thomas Piketty’s magisterial Capital in the Twenty First Century,
a vital, incredibly influential, brilliantly researched history of
wealth concentration stretching back through several centuries and
spanning the globe. Even Piketty’s critics can’t fault his
methodologies, though there are critiques of his conclusions – which
propose that unregulated capitalism will produce a hereditary class of
the super-rich – on both the right and the left.
Here’s a sharp critique from the left, published in American Prospect
by Robert Kuttner. Kuttner takes issue with Piketty’s conclusion that
government intervention between WWI and WWII and after WWII had no real
effect on the distribution of wealth; according to Kuttner, the shocks
to hereditary wealth from WWI created a series of policies intended to
restore old money fortunes, triggering a global depression. By contrast,
the post-WWII period saw a series of pro-labor interventions driven by a
strong trade union movement, and an ensuing flattening out of wealth
distribution and a degree of unprecedented social mobility.
The period during and after World War I did not just demolish a good
deal of capital held by the rich. The 1920s were an era of stupid,
deflationary policies and needlessly high unemployment. In their hapless
effort to rebuild the prewar rentier economy, the leaders of the
interwar period chased one another to collect war debts that could not
be repaid and sought to establish prewar values for their currencies.
The result was deflation, deepening austerity, and high unemployment. So
while World War I may have wiped out a lot of French and British wealth
at the top, the aftermath did not benefit the bottom or the middle.
World War I was a different experience for the U.S., which ended the war
as the world’s dominant industrial and financial power. Our wartime
policies briefly imposed surtaxes on the rich (who also profited
handsomely from the war boom) but did not lead to destruction of
capital. On the contrary, the extreme inequality of the Gilded Age
marched onward, right up until it peaked in 1929. While the Great Crash
and the Depression did destroy some fortunes, the more significant era
for the compression of income and wealth was World War II and its
immediate aftermath.
In Europe, World War II was massively destructive of both physical
capital and financial wealth. France suffered huge losses and Germany
even more, while Britain lost roughly one-fourth of its prewar capital
in borrowing to pay for the war. Though Piketty treats the period of
1914-1945 as a single statistical era for purposes of understanding
wealth compression in all the major Western nations, the American
experience was entirely unlike Europe’s. In the U.S., the most
interesting years are 1941-1973, not the years bracketed by the two wars
as Piketty contends.
Despite some losses to financial capital during the Great Depression,
the more powerful era of equality in the U.S. began during World War II.
The war was a massive macroeconomic stimulus; it produced full
employment, stronger unions, and investment of public capital. The
government’s wartime policies also repressed private finance in multiple
and reinforcing ways, including the Fed’s pegging interest rates on
Treasury bonds at a maximum of 2.5 percent, marginal tax rates set as
high as 94 percent, and an intensification of the anti-speculative
financial regulation of the New Deal. All of this did not end with the
war. It had a half-life well into the postwar era, until unions were
bashed and finance deregulated beginning in the 1970s.
